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Revisiting the Stabilization Role of Public Banks: Public Debt Matters

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  • H. Elif Ture

Abstract

This paper revisits the stabilization role of public banks and analyzes whether weak public finances may hinder this role. During the global financial crisis (GFC), public banks were widely used to counter the private credit crunch and prop up the economy. Using cross-country bank-level data for 125 advanced and developing economies for 1999–2018, the paper finds public bank lending to be less procyclical than private bank lending on average, particularly during busts. A key result, however, is that in developing economies with high public debt levels, public bank lending has been more procyclical, particularly outside of the GFC period. This finding suggests high public debt can limit the stabilization role of public banks during domestic busts, likely reflecting higher financing costs public banks face and lower subsidies they receive in economies with tighter budget constraints.

Suggested Citation

  • H. Elif Ture, 2021. "Revisiting the Stabilization Role of Public Banks: Public Debt Matters," IMF Working Papers 2021/007, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2021/007
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    Cited by:

    1. Roberto Ercegovac & Ivica Klinac & Mario Pecaric, 2024. "The Non-Sensitivity of Public Development Banks to Key Stability Performance of the Banking Sector: The Lessons for Policymakers," Croatian Economic Survey, The Institute of Economics, Zagreb, vol. 26(1), pages 37-58, June.
    2. Ugo Panizza, 2023. "State-owned commercial banks," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 26(1), pages 44-66, January.

    More about this item

    Keywords

    Public banks; countercyclical lending; economic stabilization; high public debt; WP; public bank; bank lending; development bank; bank borrowing costs; doom loop;
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